Last April, JVC (Victor Co. of Japan) was optimistic about its prospects for success in the 2007 fiscal year (ending March 31, 2007). It forecast group sales of 830B yen, ($6.9B) about a 3% rise over the previous year. On Feb. 19, JVC posted its latest earning forecast. The news was grim - sales will actually shrink about 5% in this fiscal year and the company will experience a group operating loss of 1B yen ($8.3M) instead of the 10B yen ($83M) profit it hoped for. Ouch.

Chris Chinnock
Senior Analyst and Editor
for Insight Media

This prompts two questions: what went wrong and who will buy JVC? In case you didn’t know, JVC parent company Matsushita has stated that it intends to look for buyers of the company.

In terms of current performance, JVC misfired on all cylinders. One weak spot was rear-projection TV sets, mainly sold in North America. Here, the usual suspects conspired against JVC - stiff competition for LCD and PDP, plus severe price erosion of about 20% in the Holiday selling season. Sales of the company’s CRT, LCD and D-ILA rear-projection TV sets missed their goals by a wide margin. Sales of software and media products were also sluggish.

Sales in JVC’s CE segment increased in the third fiscal quarter (ending Dec. 31) to 154B yen ($1.3B), which represents about 76% of total sales. And, nearly 82% of CE segment sales come from overseas, primarily the US, so any stumble in the US has a big impact.

There were some good points, however. Fixed costs and product cost reduction efforts have been significant and helped offset much of the price declines in the market. The problem was not enough sales of products.

JVC will probably squeak out a small 2B yen ($16.7M) profit for the fiscal year by selling off some assets and securities, but the operating picture remains troubled.

Matsushita has said it intends to select a buyer for JVC by the end of March. Kenwood is said to be interested in at least a partial share of the company, which would help it boost its audio business and expand into DVDs, TVs and professional products.

We have also heard rumors of significant interest from Chinese companies, most likely TV brands who can use the JVC brand and channel to make a strategic entry into the US market. That’s where I think JVC will go, as this is the best route for Chinese companies to crack the US market in a hurry, and, with the operating problems at JVC, look for these companies to negotiate hard to get JVC at a bargain price.